Don't count the major brands out quite yet, but Sonesta's growth continues to fly in the face of industry belief that hotel owners will flock to bigger brand franchise agreements during the pandemic recovery.
A Boston real estate trust that severed ties with IHG on a 103-hotel deal last month appears poised to do the same with Marriott on an even larger portfolio — and a smaller hotel company stands to benefit once again.
Service Properties Trust, or SVC, sent Marriott a payment shortfall notice this week on 122 hotels across 31 states. Marriott has 10 days to cover the $11 million shortfall or SVC will terminate the agreement and transfer the hotels — largely a mix of select-service and extended stay brands like Courtyard and Residence Inn — to affiliation with Sonesta International Hotels Corp., the memo states.
The flag affiliation transfer would be the second growth shot in the arm in less than a month for Sonesta, which currently has 83 hotels ahead of taking on the 103 IHG hotels at the end of November. IHG failed to make an $8.4 million payment on guaranteed property returns to SVC, sparking that agreement termination.
Sonesta, which has hotels in North and South America as well as Egypt, largely benefits from the cancelled agreements due to SVC’s 34 percent stake in the hotel company.
SVC claimed its hotels saw stronger performance under Sonesta flags in prior brand conversions. Revenue improved by more than 14 percent at 16 SVC-owned hotels that switched from IHG to Sonesta affiliation in 2012, according to an August SVC memo.
“We have received SVC’s correspondence and are reviewing it,” a Marriott spokesperson told Skift. “We don’t have any further comments at this time.”
SVC and Sonesta declined to speak for this story, but Sonesta CEO Carlos Flores hinted earlier this month of further growth opportunities on the horizon beyond the IHG conversions.
“I think it’s highly improbable we would not explore and pursue other opportunities,” Flores told Skift. “I say that tongue-in-cheek because we’re already seeing other opportunities in the market.”
The continued build-up for Sonesta is notable, as it goes against so much of the hotel industry’s view on growth.
Analysts as well as leaders of major brands like Marriott, Hilton, and IHG have all predicted the biggest hotel companies will benefit over the next few years due to so many travelers craving familiarity on their first hotel stays during and after the pandemic. That familiarity is typically found with bigger brand standards and would conceivably lead hotel owners to consider switching flag affiliation to one of these bigger brands.
But Sonesta has far less scope than the two brands SVC is dropping. Sonesta is on track to have a little more than 300 hotels after the IHG and Marriott-branded properties change flag affiliation. IHG had more than 5,900 hotels at the end of the second quarter. Marriott had more than 7,400.
“I do scratch my head in terms of distribution systems and branding in general: Marriott vs. Sonesta, IHG vs. Sonesta — that could be a challenge,” said LW Hospitality Advisors CEO Daniel Lesser. “SVC owns the assets, but they also own the brand, so from that perspective, I can see what they’re doing.”
SVC’s wave of flag affiliation shifts has less to do with maximizing distribution channels and more with gaining control at both the ownership and operations side of these hotels as well as bulking up the Sonesta brand, Lesser added.
At least one of the impacted companies doesn’t see the SVC agreement cancellations as a sign trouble is ahead for some of the world’s biggest hotel companies.
“Candidly, the relationship is a complex financial one, and we have to do what we think is right for our shareholders. They have to do what they think is right for their shareholders,” IHG CEO Keith Barr said this week at Skift Global Forum. “We have more interest coming in than we have going out. That’s more of a financial relationship and transaction than it is a definition of the performance of the portfolio.”
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Photo credit: The landlord of a 122-hotel Marriott portfolio wants to end a financial agreement and change brand affiliation to Sonesta, of which the landlord has an ownership stake. Mike Mozart / Flickr